Mongolia’s water security is crucial to enable economic growth, requiring large-scale investments to support industry, agriculture, and urban development while ensuring safe drinking water and wastewater treatment. Climate change and water-related risks demand strategic, climate-resilient planning. The government’s Vision 2050 and a New Recovery Policy outline ambitious water infrastructure goals, yet achieving them requires policy reforms, efficient resource use, and private sector engagement. This chapter sets out approaches to investment planning, financial sustainability of water services, and opportunities for commercial finance and Public-Private Partnerships (PPPs). Strengthening policies, improving cost recovery, and diversifying funding sources will be critical to ensuring long-term water security and sustainable resource management.
Water Demand Management in Mongolia
Abstract
Mongolia’s water security is a national priority, requiring urgent action to address gaps in investment planning, mobilise private sector financing, and improve the financial performance of water service providers. Meeting these challenges is critical to ensuring access to safe drinking water, effective wastewater treatment, and sustainable water resource management in the face of climate change and growing demand from urbanisation, industry, and agriculture.
Strategic investment planning is essential to address Mongolia’s growing water infrastructure needs and close the investment gap. While the government’s “Vision 2050” outlines ambitious objectives for water-related projects, limited resources for feasibility studies, fragmented planning, and competing funding priorities hinder progress. Additionally, Mongolia must adopt climate-resilient infrastructure to address the risks of floods, droughts, and glacial melt. Investment planning can be strengthened by
Centralising funding for feasibility studies to ensure strategic allocation to well-screened projects.
Sequencing projects within broader investment pathways to maximise resilience and system-wide benefits.
Integrate decentralised, natural and hybrid water storage solutions to enhance capacity and cost efficiency.
Strengthen cross-sectoral coordination through platforms such as the National Water Council.
Mongolia is already making substantial efforts to improve conditions for investment in water and to enhance the performance of water service providers across the country. Further improvements to the financial sustainability of water service providers remain critical for expanding and maintaining water supply and sanitation infrastructure. Current inefficiencies represent an opportunity cost for both the government and service providers. To address gaps in financial performance of service providers the government can consider:
Introducing performance-based contracts with clear accountability for water service providers.
Addressing non-revenue water requires actions to reduce both operational and technical losses, linked to unbilled water use or physical losses due to water seepage, pipeline accidents and leaks due to breaks. For commercial losses, increasing the uptake of metering can lead to more precise data on water usages and appropriate billing, notably in Ulaanbaatar, this includes residential users supplied by the Housing and Communal Service Authority, “OSNAAUG”.
Exploring options to rationalise staffing, which remains a significant driver of costs to service providers. Notably, Ulaanbaatar Water Supply and Sewerage Authority, “USUG”, reports a very large number of employees per service connection - roughly 10 times that of peer utilities in middle income countries.
Requiring service provider to develop sustainable business plans with multi-year targets to improve efficiency and financial performance, and plan capital expenditures.
Expanding the role of the Water Service Regulatory Commission (WSRC) to reviewing utility business plans, notably with respect to reducing non-revenue water, or new capital investment programmes, financing sources and conditions.
Reviewing the tariff structure to improve the financial performance of service providers and support efficient water usage. A tiered tariffs approach combined with subsidies can be explored to balance affordability with cost recovery.
Supporting WSRC in building its own capacity to develop robust tariff structures and review tariff proposals and manage this process effectively. At the same time, it is equally important to ensure that a targeted subsidy programme is put in place to ensure water affordability for low-income households.
Private sector engagement is vital for closing the financing gap in Mongolia’s water sector. However, limited private sector knowledge of water-related investment opportunities and unclear technology standards for pollution control remain barriers. Public-Private Partnerships (PPPs) hold promise, particularly for wastewater reuse projects, yet institutional and data transparency challenges persist. To address gaps in mobilising private investment, the government should consider:
Introducing additional guidance to clarify technology standards for water pollution control, potentially through the Best Available Techniques (BAT) approach.
Strengthening data collection, transparency, and accessibility on water resources and risks to reduce investor uncertainty.
Expanding sustainable finance initiatives to mobilise private investment in water-related infrastructure.
Developing guidelines for PPPs in wastewater reuse, including clear enforcement mechanisms.
Water is essential to economic growth, and investments will need to support industry and agriculture in Ulaanbaatar, and mining activities notably in the Gobi region. Large investment in infrastructure is required to enable access to safely managed drinking water and the provision of effective wastewater treatment to the country’s population now and as it grows in the future. In addition, Mongolia must adapt to the impacts of climate change on precipitation patterns and the melting of glaciers, and mitigate against water-related risks, including floods and drought.
At the highest level of planning, the Mongolian Government’s “Vision 2050”, and the “New Recovery Policy” which was published after the COVID-19 pandemic, sets out long-term objectives for Mongolia’s economic growth. To achieve this, it includes significant ambitions for water-related infrastructure to support industrial expansion, infrastructure mega projects, sustainable agricultural production, energy production, and urban development. In addition, Vision 2050 consists of plans to renovate and expand water supply infrastructure and to provide at least 90% of the population with safely managed drinking water by 2040.
Addressing Mongolia's water financing challenges goes beyond simply securing more funding and financing to bridge the financial gap. A robust enabling environment for water-related investment in Mongolia encompasses a comprehensive framework of policies, regulations, and institutional arrangements. Many of the reforms outlined in the previous chapters will have beneficial impacts in terms of reducing water demand, using water more efficiently and making the best use of available funding sources. Well-designed policies and institutions play a pivotal role in attracting investors and ensuring that investments contribute effectively to sustainable water resource management and the provision of water supply and sanitation services.
However, ensuring sustainable water security in Mongolia requires a strategic approach to mobilising funding and financing. In the face of growing pressures on water resources, investments must be carefully planned, prioritised, and diversified to achieve long-term goals. Water supply and sanitation holds a critical role in Mongolia’s water security agenda. Yet, in this sub-sector, Mongolia, faces issues related to cost recovery, utility performance, and staffing costs. These challenges need to be tackled to enhance service delivery, improve efficiency, and ensure the financial sustainability of water supply and sanitation services. Further, recognising the scale of investments required, it is critical to explore the opportunities for private sector involvement, particularly in wastewater treatment.
This chapter discusses the critical need for proactive investment planning, highlighting the importance of greater coherence to support water security investments, the need to mobilise additional sources of funding and finance, and consideration of alternative infrastructure solutions to support ambitions. This chapter then focuses on the evolving water supply and sanitation landscape, where financial challenges and operational hurdles must be addressed before tapping into the additional sources of finance that will be needed to achieve ambitions. Finally, recognising the scale of investments required, the report explores the potential for mobilising private sector involvement. Commercial finance, Public-Private Partnerships (PPPs), and additional guidance on regulations and standards can encourage private investment in key areas, such as wastewater treatment and reuse.
This chapter provides policy recommendations to support mobilising funding and financing for the water sector through three interconnected areas essential to realising Mongolia’s water security objectives: investment planning (Section 3.2), the financial performance and cost recovery of water service providers (Section 3.3), and mobilising private investment notably for improved wastewater treatment (Section 3.4).
As outlined in the “Vision 2050” and “New Recovery Policy” strategies, the development of water-related infrastructure is crucial for supporting population growth, economic activities, and adaptation to climate change impacts. To achieve these objectives, Mongolia must overcome significant challenges, associated with a substantial investment gap, limited surface water infrastructure, and competing priorities for public funding. A proactive and strategic approach to investment planning is essential to ensure that resources are allocated effectively, projects are prioritised, and water systems are developed to be resilient, sustainable, and aligned with Mongolia’s long-term objectives.
The Mongolia’s long-term national development policy “Vision 2050” foresees the following phased infrastructure investments for water (Government of Mongolia, 2020[1]):
2021 to 2030: creation of natural ponds and underground reservoirs on natural landforms and river basins to collect water from precipitation, melted snow and ice water, and begin construction of multi-purpose reservoirs with flow regulation on large rivers.
2031-2040: intensifying investments, including with further construction of natural ponds, reservoirs for flow regulation and underground water storage and transmission systems to increase water accumulation.
Vision 2050 emphasises the mining sector’s role in Mongolia’s economic growth.
The Blue Horse programme, designed to support these ambitions, considered 33 multipurpose dams and hydropower reservoirs over 12-13 rivers, which would require substantial investments.
More recently, the New Recovery Policy aims to strengthen Mongolia's economic independence, reduce the negative impact of the coronavirus infection (COVID-19) pandemic on the economy, support investments in large grey water-related infrastructure to support economic development and stability. The government declared 2024 the "Year of Regional Development Support" with a focus on achieving the urban and rural recovery objectives of the Vision-2050 long-term development policy and the New Recovery Policy. The new Government Action Plan for 2024 to 2028 implements these policies notably targeting regional development. The action plan includes a list of 15 mega projects, among which the Orkhon-Ongi and Kherlen-Toono water transfer projects are highlighted (Government of Mongolia, 2024[2]). Other plans include the Eg and Erdeneburen hydropower plants, improvements in water supply and sanitation, and flood protection infrastructure in provinces. To support such long- and mid-term development goals, mostly the construction of reservoirs, multiple purpose water complexes, ponds and artificial lakes are prioritised so as to ensure sustainable and reliable water supply for growing demand of the domestic, extractive and agricultural sectors (Shar, 2022[3]).
Greater coherence and clearer prioritisation are needed to support water security investments
A proactive approach is essential for ensuring the resilience and sustainability of Mongolia's water infrastructure. Currently, there is no overarching national integrated water resources management plan that consolidates these activities and develops sustainable water management strategies, such as resource-based water allocation (World Bank, 2024). Mongolia’s water system (including water resources and infrastructure), like that of other countries, are faced with a number of stressors, including operational, socio-economic, climatic and environmental stress or stress due to unexpected shocks, as seen in Figure 3.1. These include incremental stresses from demand growth from urbanisation and industry or from temperature and precipitation changes driven by climate change. Other stressors can also include disruptions due to extreme and unexpected events, such as flooding, droughts, earthquakes, fire and epidemics (Brown, Boltz and Dominique, 2022[4]).
Source: (Butler et al., 2017[5]).
Water has been prioritised at the highest level of investment planning, but this has not been followed through with concrete investment projects. In order to develop a strong pipeline of public water investments, MECC would require additional resources.
In practice, the Ministry of Economic Development (MED) prioritises and selects projects of strategic significance upon receiving applications from sectoral ministries. These projects can either be funded under the annual budget or under the Public Investment Programme (Parliament of Mongolia, 2020[6]).
For the annual budget, the MED is responsible for consolidating long-term, mid-term, and short-term policies and plans developed by the ministries and provincial governors for further approval by the Cabinet and Parliament (2020[6]). The annual state budget is approved based on the MED’s endorsement and its coordination with the aforementioned policy agenda. Public investment for water infrastructure projects can be included in the annual budget if it is stated in the provincial or capital city development plan or in the sectoral ministry’s policy agenda.
The Public Investment Programme, which is approved every five years, is used for project where the required investment exceeds USD 9 million (MNT 30 billion1). For this, the project must comply with several requirements, including a preliminary feasibility study, as stipulated in the Law on Budget,2 Clause 28.4.
In both funding options, the ministry submitting the budget proposal for the upcoming year must provide a comprehensive feasibility study report demonstrating the cost-benefit assessment and social significance to the Ministry of Finance (MOF) to mobilise further implementation funding (Law on Budget, article 29.6). The responsibility therefore lies with the sectoral ministry to conduct the necessary studies and assessments to secure funding for the next step of implementation. In addition, the prioritisation of proposed projects is often subject to interministerial competition for limited budget and may be subject to the relative political power (World Bank, 2013[7]). Given budgetary constraints in developing feasibility studies, MECC and the water sector generally, has struggled to receive sufficient state budget compared to other ministries that also normally plan infrastructure projects and activities (GoGo news, 2023[8]).
Adequate funding needs to be allocated to feasibility studies at a more centralised level so that scarce resources for feasibility studies can be strategically allocated to the projects that have passed an initial screening. Preliminary investigations require sufficient financial and skilled human resources to produce a sound technical assessment of the potential benefits, costs, and impacts of the project. Poorly designed projects can have significant negative outcomes, often disproportionately impacting on the poor and the environment, including biodiversity.
A long-term strategic approach grounded in robust analytics, can also ensure that assets deliver anticipated benefits throughout their operational lifetime, reducing the risk of premature obsolescence or costly retrofitting in the future. The common practice of evaluating investments over a single future and in terms of a single metric is likely to lead to “fragile” investments, or investments that underperform when assumptions do not hold. Droughts and floods, and a range of threats exist. These can lead to a system’s failure but are not routinely considered in planning or operational thinking. Therefore, accounting for a variety of threats using an integrated system approach is vital (Laubenstein and Leflaive, 2024[9]).
In addition, considering water projects in connection with one another, rather than individually, can provide a more comprehensive assessment of the aggregate value they create and the potential to maximise benefits for the whole system. Individual projects could be financially profitable, but still contribute to the deterioration of shared water resources. For example, as pressure on the quality and quantity of water supplies drives the need for more efficient and effective use of water, the Ulaanbaatar Water Supply and Sewerage Authority (USUG), and other utilities can consider options that integrate drinking water, wastewater, stormwater, and reuse operations, while coordinating with other sectors, including energy, agriculture, industry, and municipalities, such as though using treated wastewater for irrigation. The value created by a particular investment for the community, the environment and the economy are best assessed at the level of a sequence of projects defined so as to capture synergies as well as the positive and negative spillovers these projects can have on one another.
And the longer-term climate change consequences Mongolia will be facing require that this planning takes explicit account of the water sector performance and related investment. Box 3.1 provides an overview of the OECD’s framework for determining Strategic Investment Pathways.
Considering water projects in connection with one another, rather than individually, can provide a more comprehensive assessment of the aggregate value they create and the potential to maximise benefits for the whole system. For example, individual projects could be financially profitable, but still contribute to the deterioration of shared water resources. Further, the value created by a particular investment for the community, the environment and the economy is best assessed at the level of a sequence of projects defined so as to capture synergies as well as the positive and negative spillovers and because one single project may facilitate - or preclude - the materialisation of others.
The design of Strategic Investment Pathways (SIP) encompasses an evaluation of multiple investments considered jointly over multiple futures across the full spectrum of future uncertainties and relative to the multiple objectives articulated by the diverse community of water stakeholders. This process, described in Figure 3.2 seeks to define the scope of analysis in terms of broader system boundaries (basin or multi-basin) with purposeful consideration of how key dynamic processes and feedback loops within the system are represented.
Step 1: Set the stage for analysis
Understand the water system and set goals for its management by defining systems of interest, setting spatial boundaries, engaging stakeholders, setting goals for water system management, defining metrics for water system performance, addressing conflicting goals, gathering data and developing models.
Step 2: Evaluate options and stress test their ability to achieve water system resilience
Assess each water system design option to evaluate its ability to contribute to meeting the goals established in Step 1. Stress testing investments enables the evaluation of each investment option under different possible realisations of uncertainties.
Step 3: Design Strategic Investment Pathways
Design optimal, adaptive pathways for strategic investment through prioritisation and sequencing of projects.
Step 4: Mobilise investment across the value chain
Diagnose the enabling environment for investment, map benefits, beneficiaries and potential revenue streams, tailor financing approach to distinct conditions and design an appropriate financing vehicle, including through blended finance of public, private, and philanthropic funding.
Step 5: Navigate resilient Strategic Investment Pathways
Implement monitoring, forecasting, and adaptive management relative to system changes and key thresholds.
3.2.1. Mobilising additional sources of funding and finance remains a priority
In order to achieve the government’s objectives, a substantial increase in investments is needed. This requires identifying strategies to mobilise additional funding and financing across a range of different projects. Financial resources for investment in water security can either come from direct funding (non-repayable) or via repayable finance, as seen in Figure 3.3:
Funding can come from service beneficiaries, polluters (in the form of pollution charges), public budgets (in the form of grants or subsidies) or as external grants or transfers from development finance institutions, philanthropic organisations or remittances. For water supply and sanitation specifically (discussed in more detail in Section 3.3), these sources of funding are typically referred to as the 3Ts, which refer to tariffs, taxes and transfers.
Repayable finance can come either from concessional finance sources (typically development finance institutions, as it would include a grant element) and commercial finance (which could include loans, bonds, or equity participations).
Source: adapted from (OECD, 2022[10]).
With respect to funding sources, as discussed in Chapter 1, there remains a large investment gap. In order to achieve the government’s objectives, a substantial increase in investments is needed. The Government should consider dedicating additional funding for water management in the country. Key ministries that are involved in water management received USD 36.5 million3 for water infrastructure and management activities in 2024. The lead ministry for water policies, the MECC received USD 1 million, the Ministry of Construction, Urban Development and Housing received USD 29 million, the Ministry of Food, Agriculture, and Light Industry received USD 5.5 million.
Large water infrastructure projects represent significant investments in a context of competing investment priorities. Just one project, the Tuul Water Complex project, was estimated in 2022 to cost USD 700 million. This project aims to utilise surface water through flow regulation on the Tuul river to provide drinking and industrial water demand of Ulaanbaatar city (Shar, 2022[3]).4 As discussed in Section 0 the scale of investment required in Mongolia also points to an important need to strategically design, prioritise, plan and implement infrastructure investment, ensuring that public funding is used effectively and identifying strategies to mobilise additional finance and investment across a range of different projects.
But public spending alone will not be sufficient, leaving an investment gap that needs to be bridged with repayable financing. Mongolia is classified as an upper-middle income country, which means that its eligibility to receive Official Development Assistance (ODA) has reduced. Revenue from beneficiaries and service users will need to play an increasing role going forward. In particular, tariffs and fees are critical to help to generating funding for water management (as discussed in Chapter 2). Strengthening collection of water resource and pollution fees in Mongolia is an important way to provide a sustained and regular flow of funds for the sector that can be publicly managed and allocated to the projects that need it most. In the long term, the government of Mongolia could explore how the proceeds of water resource fees and pollution fees could be pooled together and reinvested by MECC, the Water Agency or river basin authorities into strategic projects. Strengthened assessments of the impacts and benefits of investments could also be used to inform economic instruments. For example, with adequate assessment of projects benefits and an assessment consumers’ willingness to pay, notably in mining regions, the development of Managed Aquifer Recharge and its operations and maintenance could be linked to tariffs (Fan, 2023[11]).
Crowding in contributions from a wider range of investors can help scale up investment. Vision 2050 focuses on improving water infrastructure, strengthening wastewater treatment facilities, and carrying out continuous pollution control. Under the Polluter Pays principle, those responsible for environmental damage should pay to cover the costs. This can be applied through property rights or marketable permits, providing opportunities to mobilise additional revenue flows. One example are environmental offset markets where actors with negative impacts on water resources or ecosystems can buy certificates that provide funding for restoration projects to compensate (OECD, 2022[10]). In Europe, the European Commission is implementing the Polluter Pays Principle, through extended producer responsibility. Producers of pollutants for medicinal products for human use and cosmetic products will need to cover at least 80% of the costs the costs of quaternary treatment (to remove micro-pollutants from urban wastewater) (European Commission, 2022[12]; European Parliament, 2024[13]). Similarly, in Mongolia the government could explore opportunities to increase the financial responsibility of heavy and light industries for the additional treatment required for sector-specific pollutants.
Similarly, these principles can inform voluntary financing arrangements that link potential returns to investment. This follows the Beneficiary Pays Principle, where local actors are encouraged to provide non-repayable capital for investments that provide operational benefits. For example, water utilities, businesses and property developers can benefit from improved local catchment management that provides higher turnover and lower expenditure for water treatment or improved water quality for their products. By strategically linking these returns to an investment, local actors may have the incentive to provide nonrepayable capital for investments in improving water resources management, so as to generate operational savings. For example, water supply for Ulaanbaatar comes from groundwater wells that are fed by filtration of the Tuul River Basin that originates in the Khan-Kentii Protected Area and runs through the Gorkhi-Terelj National Park. A study considered the economic benefits in terms of the market value of drinking water from preserving upstream watersheds in protected areas as opposed to unsustainable Business as Usual water management that may lead to water pollution. This found a net positive economic benefit of USD 162 million (MNT 557 billion) in terms of water supply to Ulaanbaatar area between 2018 and 2032 (Flores, Gonchigsumlaa and Surenjav, 2015[14]). This could make a compelling case to redirect revenues from Mongolia’s water use fees (discussed in Chapter 2) towards nature conservation. Alternatively, or in addition, the utility could explore payment for ecosystem services to local communities to manage protected zones.
With respect to repayable finance, development finance has played a key role in supporting Mongolia’s water-related infrastructure to date and will likely continue to play, a central role in financing water-related investments in Mongolia. In most instances, development finance takes the form of direct loans, alone, or in combination with grants. For example, the assets of Ulaanbaatar’s main water utility, USUG, have largely been financed through loans from development finance institutions. In order to service this debt, public expenditures needs to play an important role in the foreseeable future to supplement tariff revenues. Under the 2011 Mongolia Budget Law, local governments are permitted to take on debt. As a result, concessional loans from donors and the Ministry of Finance were assumed by the Municipality of Ulaanbaatar and transferred to USUG, where they were recorded on its balance sheet. As discussed further in Section 3.3, revenue from water tariffs are not sufficient at present to service long-term debt obligations. In 2021, due to the financial burden this created for USUG, the debt was transferred to the Municipality of Ulaanbaatar.
As discussed in section above (0), in order to develop a strong pipeline of public water investments and to maximise the benefit of these investments, robust feasibility studies and strategic investment planning should be a priority, particularly for large scale projects. Planning, building, and managing water infrastructure is inherently challenging. Experience from managed aquifer recharge projects in Mongolia also highlight uncertainties involved during the exploratory phase of projects which can impact on costs. This requires flexible financing to enable adjustments in the activities based on preliminary findings. In addition, the short seasonal window available for field studies and construction can also lead to significant delays and increased costs. Additionally, ongoing funding is necessary for monitoring, evaluation, and maintenance activities (Fan, 2023[11]).
Development finance can also be deployed to help attract private investment, notably using blended finance approaches that improve the terms for commercial actors through guarantees or grants, for example to improve the viability of projects or undertake feasibility studies (OECD, 2019[15]). The strategic use of concessional funds can attract private finance to overcome challenges like the need for long tenors, small ticket sizes, limited creditworthiness and the lack of clearly defined revenue sources (OECD, 2022[10]). To access private finance and investment, ensuring financial sustainability will be a priority. From the investors’ point of view, stable revenues, the ability to recover costs, and to service their debt obligations (or creditworthiness) are needed. Therefore, to access commercial finance, clearly defined predictable revenue flows from water-related investments are needed. Public or development finance can be used to support project structuring, for example, to access capital markets. In addition, funds can be invested to enhance the borrowers’ creditworthiness, notably through technical assistance to service providers so as to strengthen their internal capacity. Nevertheless, for the water supply and sanitation sector in Mongolia, improving cost recovery and efficiency will be a priority in the near term before moving toward commercial finance (discussed in more detail in Section 3.3).
3.2.2. Alternatives to large grey infrastructure should be considered
At a national scale, Mongolia has enough freshwater resources to support its growing population and economic development. However, the main challenge is that water may not be available in sufficient quality or quantity when and where it is most needed. Water storage allows managers more control over the optimal allocation of water resources and supports social environmental and economic goals by improving the availability of water, reducing the impacts of floods, and providing a variety of services for energy, transportation, and other sectors by regulating water flows (Burke et al., 2023[16]). Infrastructure to control and allocate surface water is minimal in Mongolia at present, though plans contained in Vision 2050 are looking to significantly increase water storage in the period 2031-2040 (Government of Mongolia, 2020[1]). Development of multipurpose dams and aquifer recharge infrastructure is mostly in the design stages at present, due to limited financial resources, technical capacity, and restrictions posed by transboundary allocation arrangements (Fan, 2023[11]; McKinney and Rycewicz, 2019[17]).
In addition to planning investments in large grey infrastructure for water storage, Mongolia should consider its current and future water storage capacities based on a mix of natural, built and hybrid water storage solutions, considering carefully their respective properties, advantages and disadvantages. A mix of different water storage types, systems, and services can address different challenges, and can drive overall cost savings, whilst also maximising benefits for a range of different stakeholders (Figure 3.4). Typically, investment in water storage is associated with the development of dams, reservoirs, ponds and other built systems. These allow water managers vital control to address changing water availability during wet and dry seasons, mitigate the impacts of floods and droughts, and provide essential services including clean energy, transportation, irrigation, and water supply for drinking and industry.
Source: (Burke et al., 2023[18]).
Natural freshwater storage and nature-based solutions can also form part of the solution. Wetlands, aquifers, lakes, soil, and other natural storage are also assets, that can contribute to meeting storage needs when adequately protected and maintained, as seen above and in Figure 3.5. Different forms of natural storage can be effectively used for flood mitigation services by absorbing and slowing the flow of water. For example, large wetlands, depending on their absorptive capacity, can store wet season flows and release the water over the dry season (Burke et al., 2023[16]). For example, Ulaanbaatar, is highly vulnerable to flood risk. A Flood Risk Management Strategy adopted by the Municipality of Ulaanbaatar in June 2015 estimated that the city would face over USD 80 million in economic losses, if a flood the scale of its largest recent event in 1966 was to reoccur. The strategy identified to address such risks is the rehabilitation of the Tuul and Kharaa river basins, including conservation, forest protection to reduce soil erosion and increase water retention capacity to reduce runoff as part of the Flood Risk Management Strategy (GFDRR, 2015[19]).
Conversely, natural storage can enhance dry season water availability through the slow release of water, such mountain glaciers and snowpacks. In Mongolia glaciers in the Mongolian Altai and Khuvsgul Mountain Ranges, western and northern Mongolia have been critical contributors to water resources, particularly during the dry summer months. Under impacts of climate change, glacier recession and changes in glacial lakes are impacting on the hydrology of these watersheds, leading to uncertain water availability and creating challenges for water resource management notably in Mongolian Altai. (Krumwiede et al., 2014[20]). On the one hand, this calls for environmental monitoring and evaluation of the risks of glacial melting to effectively implement integrated river basin management. Water-based decisions in western Mongolia need to be well informed to maintain the country’s commitment to sustainable use, household access, protection, and conservation of water resources (Krumwiede et al., 2014[20]). On the other hand, there could also be opportunities in the mid-term for economic diversification, such as through hydropower revenue. It may also be necessary to prioritise building infrastructure to manage risks from glacial melting and lake outbursts. Investing in risk-informed, climate-resilient, and multipurpose infrastructure, with a focus on nature-based solutions, is essential (Osti, 2024[21]).
Source: (Burke et al., 2023[16]).
To date, groundwater has played a critical role in meeting Mongolia’s water demand. Managed aquifer recharge has been identified as a potential option to support better management of groundwater resources. Managed aquifer recharge is the intentional recharge of water to aquifers for subsequent recovery or environmental benefit, and can have significant potential to address the country’s heavy reliance on groundwater and whilst also promoting circularity by treating and reusing wastewater (Fan, 2023[11]). A pilot supported by the Asian Development Bank, in Baganuur in Kherlen River Basin, demonstrated the potential of managed aquifer recharge to enhance groundwater resources in Mongolia. The project diverted surface water from the spring-fed, perennial Nariin stream into a string of shallow trenches dispersing the surface flow across the narrow floodplain landscape. As the wetted area expanded, surface water gradually infiltrated the subsurface. This was accelerated by a series of shallow holes filled with gravel within the trenches. The Baganuur pilot showed the potential of aquifer recharge to augment groundwater resources, although this is largely dependent on several technical, financial, and institutional aspects, not least of which appropriate hydrogeological conditions (Fan, 2023[11]).
Natural storage alone is unlikely to be suitable, to ensure regular base flows for household water supply, mining industrial use, or irrigation. In addition, the need to maintain environmental flows foreseen in the Integrated Water Resource Management baseline study for surface water should also be carefully considered. Ensuring that natural storage solutions can deliver requires active and strategic management, based on careful analysis of soil structure and infiltration properties, to assess the ability to contribute to improved soil moisture and groundwater recharge. This may entail protecting land (particularly in headwaters) or engaging with herders (including through systems of payment for ecosystem services) to incentivise them to adopt good management practices, notably in terms of grazing practices.
3.2.3. Summary recommendations regarding investment planning
The importance of coordinating investments across sectors is all the more urgent in the face of evolving challenges. Climate change impacts are and will continue to be felt in the form of floods, droughts, dzuds (severe winter storms). As the impacts of climate change increase pressure on Mongolia’s water system, strengthening resilience will require carefully planning.
The National Water Council, which is chaired by the Prime Minister, gives policy recommendations to ensure national water security and it ensures cross-sectoral coordination. The Water Council should play a fundamental role in advocating for public investment at the highest level, but efforts have not yet borne fruit. Currently the Water Council includes the Minister of Construction, Urban Development, and Housing, the Minister of Food, Agriculture and Light Industry, the Minister of Mining and Heavy Industry, the Deputy Minister of Health, the Governor of the Capital City and Mayor of Ulaanbaatar, the Secretary of the National Security Council Advisor to the Chief Cabinet Secretariat, the Director-General of Water Authority, the Director of the Water Department, the Institute of Geography and Geology, the Mongolian Academy of Sciences, the Director-General of the Water Policy Coordination Department, and the Ministry of Environment and Climate Change, who is also the secretariat of the National Water Council.5 From this list is notably missing the Ministry of Finance (MOF), who would be a key participant to prioritise water issues in public budgeting exercises and to prioritise water-related investments for development support.
The scale of investment required in Mongolia points to an important need to strategically design, prioritise, plan and implement infrastructure investment, ensuring that public funding is used effectively. The Ministry of Economic Development (MED) and project developers could benefit from sequencing projects and situating project pipelines within broader strategic investment pathways in order to ensure they are resilient and contribute to sustainable water resource management and sustainable growth over the long term. In addition to planning investments in large grey infrastructure for water storage, Mongolia should consider its current and future water storage capacities based on a mix of natural, built and hybrid water storage solutions. The MED and MOF already conduct trainings with ministies on strategic investment planinning guidelines. As well as targetting this to ministerial specialists in charge for financing, planning or accounting, MED and MOF may want to consider expanding these trainings to include thematic specialists to contribute to financing, investment strategy building.
Critically, adequate funding needs to be allocated to feasibility studies at a more centralised level so that scarce resources for feasibility studies can be strategically allocated to the projects that have passed an initial screening. Notaby, development finance can be better coordinated around water security. This can include grant funding to support advisory services and technical assistance to facilitate the effective implementation of projects and to strengthen institutional capabilities to prepare comprehensive feasibility studies that consider economic, social, and environmental aspects.
Mongolia can consider linking several key priorities for development support to meet multiple policy objectives as reflected in Vision 2050, the National Adaptation Plan and Nationally Determined Contributions. A potential approach could be under a Country Platform to coordinate development support and private investment around key policy priorities and strategic infrastructure projects. For example, in Egypt, the Country Platform for the Nexus of Water, Food, and Energy was launched in 2022, as described in Box 3.2. In particular, the Water Pillar within this Platform focuses on projects that seek to revitalise irrigation and water management systems. The goal is to address future water shortages, conserve scarce water resources, and enhance water access and utilisation. Under the platform, advisory services and technical assistance have been provided to national stakeholders to facilitate the effective implementation of projects. This support, funded by grants from development partners, includes a capacity-building component to strengthen institutional capabilities to prepare comprehensive feasibility studies that consider economic, social, and environmental aspects (Government of Egypt, 2023[22]).
In the build-up to 27th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP27), the Government of Egypt launched the Sharm El Sheikh Guidebook for Just Financing and Egypt’s Country Platform for the Nexus of Water, Food, and Energy (NWFE فـــيِّوَ ُن). Moving from policy to practice, NWFE applies the key themes of the Sharm El Sheikh Guidebook’s just financing principles:
Country Ownership: Prioritising national needs and resources is vital for reinforcing country ownership. This approach helps overcome investment obstacles, particularly when these priorities are translated into a pipeline of investable projects.
Equitable Pathways: Given the considerable cost of implementing the climate action agenda, which often surpasses the capacity of developing countries already committed to development plans, international financial institutions and climate funds must offer additional resources under reasonable conditions.
Governance: The absence of a comprehensive global governance structure for climate finance hampers the effective disbursement and utilisation of funds. Therefore, it is important to establish governance structures for climate finance at both national and international levels to ensure the delivery of impactful results.
The platform adopts a country-led and bottom-up approach. It draws strength from the commitment of the Government of Egypt, providing clarity of climate goals and targets and establishing credibility with the global community anchored in transparency and accountability. Through the design, structuring, and preparation of concrete and implementable projects, the platform significantly increased Egypt’s access to sources of climate finance, investment funds and catalysed private investment, leveraging innovative financing modalities.
Application of Egypt’s Country Platform for the Nexus of Water, Food, and Energy
With a clear vision articulated in Egypt’s National Climate Change Strategy 2050 and the country’s Nationally Determined Contributions (NDCs), a set of 26 high-priority projects for adaptation and mitigation aligned with the national and international climate agenda were identified. Among these, nine projects were chosen to be part of the NWFE Platform:
In the Water Pillar, projects focus on revitalising irrigation and water management systems. The goal is to address future water shortages, conserve scarce water resources, and enhance water access and utilisation.
In the Food Pillar, projects aim to bolster the adaptation and resilience of the agriculture sector by promoting the adoption of smart agricultural practices among farmers.
In the Energy Pillar, projects aim to improve access to clean and renewable energy.
By leveraging technical cooperation and financing from over 30 stakeholders, the platform taps into diverse capital sources, encompassing debt swaps, guarantees, concessional loans, grants, and private investments. The overarching goal is to alleviate the burden of debt and facilitate a more sustainable financial structure.
The total investment within the platform is worth USD 14.7 billion, including USD 10 billion for the energy sector, USD 1.35 billion for the water sector, and USD 3.35 billion for the agriculture and food security sector.
Source: (Government of Egypt, 2023[22]) Egypt’s Nexus of Food Water and Energy from Pledges to Implementation, Progress Report Number 1 - November 2023.
Mongolia has a strong legal framework governing water management and usage which establishes the foundation for charging consumers for water usage, wastewater discharge, and penalties for rule violations. The legal framework is based on laws such as the Water Law (2012), the Law on Use of Natural Resources (2012), the Law on Water Pollution Fees (2019), and the Law on Use of Water Supply and Sewage System in Urban and Settlement Areas (2011).
In addition, Mongolia has established since 2012 an independent regulator, the Water Service Regulatory Commission (WSRC), which oversees water service charges and tariffs on utilisation and service of water supply and sewage. The national government owns the water and wastewater infrastructure, but local governments are responsible for raising funds to cover capital, operation and maintenance, and repair costs for all water assets, including those owned by the central government.
The WSRC issues licenses for a variety of different operation and maintenance categories, from operation and maintenance of facilities for water supply, and drinking water distribution networks to operation and maintenance of wastewater collection networks to wastewater treatment facilities.
The landscape for service provision varies significantly depending on the level of urbanisation. In Ulaanbaatar, which is highly urbanised, service provision is entirely managed by public utilities and private water companies. In satellite cities, districts often only manage just bulk water distribution, and public utilities deliver water to end users. In rural areas, which can be very sparsely populated, districts typically manage all aspects of water supply. Similarly, responsibility for sanitation service delivery varies with the level of urbanisation, with districts in satellite cities collecting sewage and emptying septic tanks as a fee-based service.
In the capital city, USUG, a public utility owned by the municipality plays a key role. USUG is mandated with water supply and sewerage operations and has end-to-end responsibility for water supply functions, including sourcing, treatment and distribution to both retail and wholesale customers. The mandate for retail distribution to consumers through the central network is shared with the Housing and Communal Service Authority, “OSNAAUG”, another publicly owned utility, and some 70 private water companies. These private companies are typically associated with construction companies and have entered the water supply market by extending distribution lines from the central network to new apartment developments, mostly at the fringes of the city.
Optimising the use of existing assets and funds is an important first step to addressing the financing gap for municipal water supply and sanitation infrastructure in Mongolia. Currently, operations and maintenance, as well as asset depreciation costs are not fully covered by service provision budgets. Finding ways to reduce these costs represents an important opportunity to increase the reach of constrained budgets.
3.3.1. Improved cost-recovery through existing funding sources will be needed before accessing commercial finance
Before seeking to attract repayable financing, utilities should focus first on achieving financial sustainability, notably by improving cost recovery through tariffs, whilst also optimising and reducing operations and maintenance costs. This approach is illustrated in Figure 3.6, which shows the pathways that utilities can adopt to move from an unsustainable situation, in which funding from tariffs and taxes do not cover costs to one where they can access commercial finance to mobilise up-front financing for investment in a sustainable manner. As seen in Figure 3.6, engaging in such a pathway requires reducing costs, through efficiency gains, increasing tariffs (particularly once service improvements have been delivered) and mobilising repayable financing from a mix of sources, including concessional and commercial finance (Goksu et al., 2017[23]).
Note: Capital expenditures (capex), Operating expenditures (opex); Sustainable Development Goals (SDG); Water supply and sanitation (WSS).
Source: (Goksu et al., 2017[23]).
In the mid to long term, and in light of substantial investment needs, crowding in contributions from a wider range of financiers could help scale up investment for projects where there is an attractive risk-return profile. The choice and blend of funding and financing sources should adhere to the Sustainable Cost Recovery principles, where revenue streams are secured through a mix of the 3Ts and this income is leveraged to attract repayable financing (OECD, 2011[24]). Eventually, boosting the availability of commercial finance within the sector in Mongolia would empower service providers to borrow and enhance investments in improvements and expansions of water supply and sanitation services without being reliant solely on scarce public resources. This would also free up public funds to be used elsewhere where they can have most impact, including for large scale investments in water storage and transport infrastructure.
While access to commercial finance for water infrastructure is still fairly uncommon in lower- and middle-income countries, there are some successful examples of water utilities in such countries that have tapped into local and international financial markets. These include Manila Water in the Philippines, Companhia de Saneamento Basico do Estado de São Paulo (SABESP) in Brazil, Nairobi Water in Kenya, and the Phnom Penh Water Supply Authority (PPWSA) in Cambodia (Goksu et al., 2017[23]).
3.3.2. Ulaanbaatar has seen notable improvements in operations
In Ulaanbaatar, USUG has made notable progress to improve performance. According to data reported to the World Bank’s International Benchmarking Network for Water and Sanitation (IBNET), USUG performance is above international averages for indicators such as continuity of supply, drinking water coverage and drinking water quality, percentage of metered connections, wastewater collected and treated, and service complaints resolved (World Bank, 2024[25]).
Yet, non-revenue water remains relatively high, which amounts to foregone revenue. In provinces, in 2023, non-revenue water reached 39.7%. In Ulaanbaatar, USUG’s non-revenue water is roughly 14% of the total water supplied, which, as an absolute percentage, is lower than peer countries. However, measuring non-revenue water as a percentage can be misleading. When factoring in the length of the network and the number of service connections managed, Ulaanbaatar's non-revenue water is significantly higher compared to utilities in other low- and middle-income countries. Expressing non-revenue water in litres per connection accounts for both the scale of the water distribution network and the number of service connections, and is useful to compare utilities with different conditions (e.g., urban vs. rural) with view of network characteristics (World Bank, 2024[25]). Considering the litres per connection per hour paints a radically different picture, as seen in Figure 3.7.
Note: The line dots represent the recommendations for non-revenue water. Above 20% of water losses it is considered very important losses, under 5% it is considered negligeable losses. Data for Mongolia only covers one utility, the Ulaanbaatar Municipal Water and wastewater Company, whereas for the other countries the data covers multiple utilities across different cities and municipalities.
Source: Data from ibnet and OECD analysis based on data provided by the consultants providing references to official sources.
Addressing non-revenue water requires actions to reduce both operational and technical losses, linked to unbilled water use or physical losses due to water seepage, pipeline accidents and leaks due to breaks. For commercial losses, increasing the uptake of metering can lead to more precise data on water usages and appropriate billing. The metering deficit is larger for OSNAAUG, which receives 70% of water supplied by USUG. In 2017, residential users accounted for 84% of water supplied by OSNAAUG and of these, only 70% were metered. The remaining 16% of supply went to commercial consumers, of which 92% were metered. Most supply from private companies was also metered (WRG, 2019[26]). This indicates that there is scope to improve efficiency in metering and billing in Ulaanbaatar, particularly for residential users supplied by OSNAAUG.
In satellite cities and rural areas, local government plays a large role in water service provision. In districts, local government often only manage bulk water distribution and collecting sewage and emptying septic tanks, whereas in rural zones, local governments typically manage all aspects of water supply and sanitation. Where public utilities operate, this typically takes place under delegated authority from the city on the basis of contracts made between the Mayor’s Office and Directors of the utilities. Water supply and sanitation service delivery often suffers due to limits to the local budget allocated from the central government. Central budgets allocated to local level are subject to rigid central budget norms. Local governments must cover any shortfalls, which can generate substantial difficulties for the latter. Moreover, challenges remain with respect to local capacity, including inconsistency in legal frameworks, allocation of responsibilities and budgeting arrangements (ADB, 2021[27]; UNICEF, 2016[28]).
A significant drawback of this system is that local governments must cover any shortfalls. Moreover, challenges remain with respect to local capacity including consistency of applying legal frameworks, allocation of responsibilities and budgeting arrangements (ADB, 2021[27]; UNICEF, 2016[28]). In addition, water service providers do not have clearly defined performance targets which they are accountable to, which means that there are no incentives and/or penalties if targets are not met. This is particularly relevant where local governments, who are ultimately responsible for operation and provision of water and wastewater services, have commissioned public utility service organisations through management contracts.
3.3.3. Staffing is a significant driver of costs to service providers
A large share of expenditures for water service providers is dedicated towards salaries. High staffing costs and onerous supply to Ger areas contribute to increasing higher costs and impact on the financial viability of the service provider. Although 70% of the country’s population (3.3 million) lives in urban areas, a large share of this population lives in peri-urban areas, which lack centralised water supply and sanitation infrastructure. Notably, in Ulaanbaatar, Ger area residents amount to around 400 000 residents, equivalent to 15% of the country’s population. Organising water and wastewater in informal settlements filled with traditional non-permanent ger structures is costly. In Ulaanbaatar, USUG is responsible for supplying drinking water services through 708 water kiosks, of which more than half are supplied through trucks (the remaining being through the central network) and most are not yet automated, and therefore require USUG staff involvement (USUG, 2024[29]).
USUG reports very large numbers of employees compared to peer utilities. The utility reports 129 employees per 1000 connections, well above industry averages of between 1 and 15 employees per 1000 connections in middle income countries, as seen in Figure 3.8 (World Bank, 2024[25]). While this can be tied to operations and maintenance needs specific to the Mongolian context, it will be important to explore opportunities to rationalise these costs. For example, this could take the form of externalising certain activities linked to repairs, notably when the same services can be usefully contracted by different public utilities and private water companies (USUG, 2024[29]). Already, the Millenium Challenge Account development programme is working with USUG on the development of smart kiosks for delivering water to Ger regions, with view of reducing staffing costs and more flexible operating hours for consumers.
Note: Data from Ibnet.
Source: (World Bank, 2024[25]).
Analysis of expenditures from service providers in Mongolia, shared in the context of the National Dialogue on Water, shows that the share of salary expenditures, within overall expenditures, is larger than the share of depreciation and operations and maintenance combined. In particular, operations and maintenance costs represent only a minor share of expenditures, which can point to relatively low expenses on preventive maintenance which is crucial for extending the lifespan of assets.
Mongolia is faced with ageing infrastructure, having developed many large-scale urban infrastructure projects in the 1970’s and 80’s (Erofeev, 2024[30]). As water infrastructure ages, maintenance costs increase linked to deteriorating sewer systems, frequent water main breaks, and degraded pipes. For example, in Ulaanbaatar, the Central Wastewater Treatment Plant was built in the 1970s and 1980s and is coming to the end of its useful life. Since its construction, no major restoration work has taken place, which leads to higher expenditures on minor repairs and maintenance work. In the last decades, Ulaanbaatar has faced a sudden increase in the volumes of wastewater to be treated due to a growing population and new industries within the city boundary. Under the current situation, the treatment plant is constantly overloaded both in terms of volume and pollution load (Byambadorj and Lee, 2019[31]).
The disconnect between asset users and financiers also undermines proper asset management and service pricing. Prior studies have highlighted that the disconnect between infrastructure development and responsibility for operation and maintenance of systems in Mongolia has resulted in a cycle of "build-neglect-rebuild" (UNICEF, 2016[28]). In such cases, the central government invests in new infrastructure, but due to insufficient cost recovery or inefficient operations, local governments and service providers neglect the maintenance of existing assets. Ageing infrastructure leads to overloaded treatment facilities, but also to deteriorating sewer systems and frequent water main breaks. Old pipes can threaten drinking water quality, among other risks.
The allocation of responsibilities across different public actors can also create competing pressures on the objectives of the utility. In Ulaanbaatar, the city owns all the water supply assets and exercises a supervisory role. USUG and OSNAAG are wholly-owned by the Municipality of Ulaanbaatar (MUB), and work under delegated authority from the city on the basis of contracts made between the Mayor’s Office and Directors of the utilities. The city has the authority to appoint USUG’s director and has oversight over operations and staffing. Local government objectives may include providing jobs or offering water services to low-income customers at tariff levels below cost, which can conflict with financial viability objectives and impact on the performance of water utilities (Soppe, Janson and Piantini, 2018[32]). The city has the authority to appoint USUG’s director and has oversight over operations and staffing. Limited autonomy can have implications for operational efficiency and utility managers need to have the credibility, accountability, and autonomy required to perform successfully. This in turn can encourage governments to channel more resources to the sector, while also improving conditions for private lenders to provide increasing levels of financing.
3.3.4. Efforts to improve utility performance have accelerated over recent years
Mongolia has made important efforts to improve the performance of the water sector. A notable development has been the establishment of the Water Services Regulatory Commission (WSRC) in June 2012. WSRC issues licenses for services of water source operations and for operation and management of networks for water supply and wastewater management. All water utilities, as well as private water companies in Mongolia are license holders of WSRC and it also monitors utility performance including through benchmarking. In provinces, efforts are underway to coordinate service provision under dedicated water supply and sanitation organisations with view of improving quality of service provision. Management of water and heat activities are being integrated and entrusted to utilities and private companies who have been granted special licenses for service provision. The number of special license holders is expected to increase in coming years.
The WSRC also plays an important role in benchmarking utility performance and providing awards for high performing service providers. For continuous improvement of service provision, service providers need to be empowered to design and implement effective improvement programmes and implement robust financial management systems, and to continuously benchmark themselves against industry peers using Key Performance Indicators (KPIs).
It is important to note that the WSRC does not currently have a role in approving business plans. Sustainable business plans with multiyear targets are a critical component of strategies to enhance utility performance. These can for example include plans to improve human resource and management information systems or plans for reducing non-revenue water, or new capital investment programmes, financing sources and conditions.
Increasing operational capacity has also been identified as a priority. The WSRC declared 2024 the "Year of Human Resource Empowerment" and is encouraging greater recruitment of technical experts and engineers as well as experts from the extractives sector. As discussed in Chapter 4, building skilled human resource capacity will also be critical to update the management system of the state-owned entities, which is foreseen under the Government action plan for 2024-2028.
Efforts to strengthen USUG’s operational capacities (USUG) have also been supported by the Millennium Challenge Account (MCA), which is described in Box 3.3. Under its "Utility Operations Sub-Activity" the programme applies benchmarking tools and establishes partnerships with experienced water utilities to enhance asset management and customer service. From 2023 to 2030, under the MCA programme, USUG is participating as a mentee in the Water Operators Partnership (WOP) programme with the Netherlands, with the aim of strengthening critical operational capacities where deficiencies had been identified through AquaRating, an international assessment and benchmarking tool for utility operations (VEI, 2024[33]).
The Millennium Challenge Corporation (MCC) has been a notable support of the water sector in Mongolia in recent years. In 2018, MCC established the Mongolia Water Compact in partnership with the Government of Mongolia, referred to as the Millenium Challenge Account (MCA). The MCA is the largest ongoing urban water supply and sanitation sector initiative which has so far mobilised USD 462 million in climate-smart investment, made possible by a USD 350 million grant from the US government and a USD 112 million Mongolian Government contribution (Five-year from March 31, 2021, to March 31, 2026).
The Mongolia Program focuses on the binding constraint of “costly access to water and sanitation,” and is designed to address the problem of limited long-term sustainable supplies of water for the capital city, Ulaanbaatar.
It focuses on three key areas: Downstream Wells Activity, Wastewater Recycling Activity, and Water Sector Sustainability Activity.
Downstream Wells Activity: This involves constructing new wells, pumps, pipelines, and a purification plant to increase water supply. It aims to enhance water quality and convey treated water into Ulaanbaatar's existing network.
Wastewater Recycling Activity: This supports the construction of a recycling plant and associated infrastructure to reuse wastewater effluent, particularly for processes in heating and power plants, so as to reduce strain on freshwater sources.
Water Sector Sustainability Activity: This includes interventions to improve policy, legal, regulatory, and institutional frameworks for water management. It addresses cost recovery, containment of expenses in underserved areas, utility operations enhancement, industrial pollution control, and public awareness campaigns.
Source: (MCA, 2024[34]).
3.3.5. Cost recovery through tariffs has not been achieved
USUG’s operating cost coverage reported to IBNET indicate a strong financial risk. As seen in Figure 3.9, total annual operational revenues were only 83% of annual expenditures in 2021. While this challenge is not uncommon among utilities in the region, Mongolia’s cost recovery is lower than for peer countries, such as Armenia and Bangladesh (World Bank, 2024[25]). Insufficient revenue from tariffs limits providers' ability to expand to meet growing demand and result in an inability to finance necessary infrastructure investments.
Note: The line dots represent the recommendations for operating cost coverage. Above 1.2 the total annual operational revenues are sufficiently higher to the total annual operating costs, under 0.8 it is considered that revenues are too short to cover costs. Data for Mongolia only covers one utility, the Ulaanbaatar Municipal Water and wastewater Company, whereas for the other countries the data covers multiple utilities across different cities and municipalities.
Source: Data from the ibnet and OECD analysis based on data provided by the consultants providing references to official sources.
Approved in 2018, a Water and Wastewater Tariff and Charge Estimation Methodology was revised to support improved cost-reflectiveness and cost recovery. The methodology for “Revenue Required” is calculated based on Operational Costs, Depreciation Costs and Investment Return, as seen in Box 3.4. The tariff structure for Ulaanbaatar distinguishes between residential and non-residential customers. Tariffs for residential customers distinguish between residents living in apartments and residents of the ger areas. For non-residential, the regulation distinguishes between factories, businesses, and other organisations.
WSRC approves or modifies tariff proposals based upon a detailed financial evaluation of actual service costs. For instance, for Ulaanbaatar, WSRC approves or modifies tariff proposals submitted by USUG and OSNAAUG. This is based on a detailed financial evaluation of actual service costs and the requirement that tariffs must be the same for each customer category residing in the same urban or rural area, irrespective of service provider.
The WSRC increased water tariffs in Ulaanbaatar by 50 to 100% in January 2022, after COVID-19 restrictions were released. This increase contributed to improving USUG’s financial position without significant loss as of December 31, 2022. In November 2023, the tariffs for apartment residents and entities were increased by around 25 percent (MCA, 2024[34]).
Despite the update to the Tariff Methodology, cost recovery has remained an issue with a persistent gap remaining between tariff revenue and expenditures over the last decade. Several potential challenges under the current tariff regulation have been highlighted:
a. The tariff methodology does not specify the wholesale water tariff. Given that a large share of USUG’s water sales are wholesale in nature, there are important implications for USUG’s financial health. Therefore, a clear methodology for determining cost-reflective wholesale water tariffs payable by OSNAAUG and private water companies is important to ensure both financial stability and transparency. The methodology further allows for financial losses in water supply services to be covered by financing from local administration, but it is unclear whether this option is being used (WRG, 2019[26]).
b. The tariff policy does not take into account repayment of long-term debts through the water tariff. According to recent analysis, under its current position, USUG is able to cover asset depreciation only partially, while not being able to recover capital costs (WRG, 2019[26]). For USUG to tap into repayable finance whether concessional or, in the future commercial, it is essential to improve its ability to fully recover costs.
c. The high cost of supplying to Ger areas is absorbed by other users. In other countries, supply to informal settlements or disadvantaged peri-urban areas can benefit from support from local and national government to meet capital as well as operational expenditures. This plays an important role in ensuring that the poor receive equitable access to water through concessional tariffs. Making it easier to connect to the network for the poorest population in Ger areas (for example via reducing or eliminating connection charges) could have positive impacts. Notably this could help reduce the pressure on illegal well-drilling and provide more reliable revenue sources for water service providers.
The purpose of the Water and Wastewater Tariff and Charge Estimation Methodology is to determine the tariffs and fees for water and wastewater services to be applied by the holder of a special license for water supply and sanitation in each area. The tariff is calculated based on the actual cost performance of the last 3 years of operation and the plan for the next year.
User groups and cost allocation
When calculating clean water tariffs and wastewater tariffs, users are classified as follows:
A. Households (with and without meters)
B. Factories, enterprises, organisations
a. Factories, enterprises, organisations other than those mentioned below
b. Public sector- entities
c. Alcohol, liquor, beer, beverage, juice and water industry, meat processing industry
d. Wool, cashmere, leather, car wash
Required Revenue
The methodology is based on the estimated “revenue required” by the licence holder for continuous operations and reliability and quality for customers. Therefore, the operations and maintenance are based on actual cost performance of the last 3 years of operation and the plan for the next year.
Revenue Required = Operational Costs + Depreciation Costs + Investment Return
Required Sales Revenue for tariff calculation
Required Sales Revenue for tariff calculation = [Required amount of sales revenue] - [Basic fee income] + [Loss of portable water for the population living in ger district area]
Fixed Tariff
The base price or fixed tariff is intended to create conditions for 24-hour continuous provision of services to consumers connected to centralised water supply and sewerage networks, and to ensure conditions for constant availability of services.
For residential users: [Base price] = [Fixed cost]/(12*number of users) (MNT/month)
For other users: [Base price] = [Fixed cost]/[Physical volume of services] (MNT/ thousands m3)
User fees
Total monthly payment for clean and wastewater services of the customer = [monthly payment for clean water services] + [monthly payment for wastewater services] + [base price]
Where,
Monthly payment for clean water services = [approved clean water tariff, MNT/m3]*[the amount of water used by the user per month, m3]
Monthly payment for wastewater services = approved wastewater tariff, MNT/m3]*[the amount of water used by the user per month, m3]
The basic fee is calculated by the diameter of the cold water inlet line or the diameter of the line (meter) where the meter is installed.
Source: WSRC (2018) Tariff and Billing Approach for Clean and Wastewater Services.
3.3.6. The WSRC has an important role in setting tariffs for water and sanitation services
The Vision 2050 strategy outlines plans to strengthen economic instruments, increase revenue for water supply and sanitation, and provide incentives for managing water quantity and quality. This includes raising water tariffs by 2030 and optimising payments for water resources and pollution by 2040 (Government of Mongolia, 2020[35]). Tariff revenue should support financing operations and maintenance expenses, facilitating infrastructure expansion, upgrading to more efficient or sustainable technologies, and improving service provision. USUG’s revenues from water and wastewater tariffs and fees should fully cover the costs of operations and maintenance and depreciation associated with the water supply, wastewater collection, and wastewater treatment systems in Ulaanbaatar, including for ger areas.
Ultimately, USUG will need to increase tariff levels for residential and non-residential users. At the same time, there are important social implications to setting tariff levels, which directly impact on affordability and access to water. When users have limited ability to pay, collection rates may decline and tariff revenue may fall short of covering operations and maintenance costs (Leflaive and Hjort, 2020[36])
The WSRC, as the regulatory agency, will have an important role to play to implement gradual tariff increases associated with improvements in service levels and supporting the development of a targeted water affordability programme. A key consideration in these efforts will be maintaining affordability for Ger regions and low-income households. Cost reflective tariff systems will need to include a targeted water affordability subsidy. Careful consideration will need to be given to cross-subsidisation of low-income users, notably through drinking water consumption by commercial users (textiles, beverage industry, for example). This will require the WSRC to build its own capacity to develop robust tariff structures and review tariff proposals.
Updates to the tariff structure have been studied by the Water Resource Group and more recently under the Millennium Challenge Account (MCA) Water Sector Sustainability Activity. The "Cost Recovery Sub-Activity" aims to propose a structure for water tariffs to cover operational costs, and involves various studies, including recent assessments of willingness and ability to pay. The objective of this work was to provide the WSRC with data to assess tariff structures, rates, and affordability problems for each consumer class and to inform water authorities on the development of service level targets and corresponding investment and planning decisions that reflect consumers’ demand. The Affordability Study identified subclasses of household water customers that face “affordability issues” at given tariff levels, considering income groups within metered apartments connected to the water and wastewater system; unmetered connected households; and ger area kiosk customers (MCA, 2024[34]).
The next stage of the MCA project will support WSRC in developing sufficient capacity to oversee a review of the tariff structure through tariff and subsidy modelling and revision. To-date, water prices have not reflected the cost of supplying water, and USUG has required some level of operating subsidy. Assets developed under the MCA Compact agreement (Box 3.3) will put additional pressure on USUG financial stability. This project includes constructing new wells, pumps, pipelines, and a water treatment plant to increase water supply.
The construction of a recycling plant and associated infrastructure to reuse wastewater effluent, particularly for processes in combined heating and power plants, is also being considered. This should help alleviate the strain on freshwater sources. However, there is an important question on how the wastewater treatment plant will be managed once the project is completed. A cost-reflective tariff for the treated wastewater would be higher than the current water tariffs and would thereby drive-up costs for producing electricity in combined heating and power plants. In order for the business model to work in practice, there are important considerations regarding the role of public finance in ensuring affordability. Supporting USUG’s ability to recover its costs is all the more critical for the sustainability of water supply and service in Ulaanbaatar.
Tiered tariffs represent one approach to balancing cost recovery with affordability, particularly for low-income users, especially when paired with targeted subsidies. These tariffs offer lower rates for basic consumption levels, gradually increasing for higher usage, incentivising efficient water use while supporting cost recovery for service providers. Tiered tariffs can be progressive when they meet two conditions: i) the highest tariff blocks are set well above the average cost of service provision and income generated serves to cover the costs of the subsidised lower blocks; and ii) they take into consideration that poor households can actually consume more water than wealthy ones (because they have larger families, or less water-efficient networks or appliances) (Leflaive and Hjort, 2020[36]). Such approaches have been successful in countries like Chile, where targeted subsidies ensure access for marginalised populations (Box 3.5).
In Chile, a tariff for urban water supply and sanitation was implemented under water reforms in the 1980s. These reforms aimed at recovering the costs of service and led to substantial efficiency gains, but also increased the price of supply delivery.
To address concerns over the affordability of services to low-income households, the government introduced an individual means-tested water consumption subsidy in the early 1990s.
The scheme targeted roughly 20% of poorest households nationwide, for which the water supply and sanitation bill constituted over 5% of their monthly income. The subsidy covered 25–85% of the cost of household’s basic water consumption (up to 15 m3 a month) and sewerage, with all consumption beyond this limit charged at the full price. The municipality played a central role in the subsidy scheme, receiving applications, determining eligibility and paying the subsidy directly to the water companies from funding received by the central government.
The combined tiered tariff and subsidy scheme enabled Chile to successfully increase water prices to reflect costs without compromising social and distributional goals. By 2000, the cost of the subsidy scheme reached USD 42.5 million. This was significantly lower than the cost of the previous universal subsidy scheme, which issued subsidies to water service providers, which were at the time loss making. A financial deficit of 2% of assets in the WSS sector became a surplus of 4% leading to net profits of USD 107 million - more than double the subsidy scheme’s costs.
The subsidy scheme has since been updated and expanded to broaden coverage to vulnerable groups. A 100% subsidy was also introduced for beneficiaries of the welfare program (‘Chile Solidario’) designed for very poor households.
3.3.7. Summary recommendations on the financial performance and cost recovery of service providers
Addressing capital efficiency is crucial for Mongolia's water sector. The disconnect between asset users and financiers undermines proper asset management and service pricing. Improving performance requires actions such as establishing a baseline for performance, rationalising expenditure, setting clearly defined objectives and targets, updating management information systems, and improving human resources. The World Bank Utility Turn Around Framework (Box 3.6) is one approach that can be used for establishing appropriate actions at each phase of the utility’s maturity (Soppe, Janson and Piantini, 2018[32]).
Utility performance relies on internal factors as well as political economy. Improving utility performance requires a systematic, coordinated, and prioritised approach to improving operational and managerial capacity. The World Bank has defined a Utility Turn Around framework for determining steps to improve the performance of utilities.
The framework consists of four phases, each comprising several steps. Phase 0 is a preliminary phase in which the current state of the utility and its external environment are assessed. Phase 1 will implement relatively small, low-cost interventions to build the credibility, accountability, and autonomy necessary to move on to phase 2. Phase 2 will allow management to develop and implement an action plan. In phase 3, management will be able to implement measures that continue to enhance the utility’s maturity levels; institutionalise best practices; and allow it to develop long-term strategic plans.
Note: If the utility is not ready to start with phase 3, its current performance and turnaround may have to be reassessed. This could mean that the utility is not meeting the goals of affordable service and access in a sustainable way. In this case, the utility may need to carry out a full-fledged turnaround and start with phase 1 or 2.
Current inefficiencies represent an opportunity cost for both the government and service providers. Reducing inefficiencies is essential for ensuring the financial sustainability of water services. Improving the performance of utilities and transparency of operations can help strengthen the financing viability of the WSS sector and improving access to finance as follows:
Signing performance contracts with the government can help define utility’s expected performance and the support to be provided by the government to achieve it. Currently, water service providers do not have clearly defined performance targets which they are accountable for, which means that there are no incentives and/or penalties if targets are not met. Introducing clearer performance targets in contracts between local government and service providers can be an important lever for efficiency improvements. This is particularly relevant where local governments, who are responsible for operation and provision of water and wastewater services have commissioned public utility service organisations through management contracts.
Addressing non-revenue water requires actions to reduce both operational and technical losses, linked to unbilled water use or physical losses due to water seepage, pipeline accidents and leaks due to breaks. For commercial losses, increasing the uptake of metering can lead to more precise data on water usage and appropriate billing. In Ulaanbaatar, this will notably require improving metering and billing for residential users supplied by OSNAAUG.
In Ulaanbaatar, USUG reports very large numbers of employees compared to peer utilities. The utility reports 129 employees per 1000 connections, well above industry averages of between 1 and 15 employees per 1000 connections in middle income countries (World Bank, 2024[25]). While this can be tied to operations and maintenance needs specific to the Mongolian context, it will be important to explore opportunities to rationalise these costs.
The WSRC, as the regulatory agency, will have an important role in overseeing operational and financial performance improvements in service providers in Mongolia:
Sustainable business plans with multiyear targets are a critical component of strategies to enhance utility performance. This can include targets within the business plans to improve human resource and management information systems. The WSRC, as the regulatory agency, will have an important role in overseeing operational and financial performance improvements in service providers in Mongolia. This could include reviewing plans for reducing non-revenue water, or new capital investment programmes, financing sources and conditions.
Tariff revisions and a comprehensive tariff reform are needed to support greater cost recovery. USUG and other service providers will need to increase tariff levels for residential and non-residential users. WSRC will have an important role to play to drive gradual tariff increases associated with improvements in service levels. A tiered tariff approach with consideration for affordability through targeted subsidies should be considered.
In addition, the tariff review should address current gaps in terms of the tariffs that are regulated. Under the current tariff structure, the methodology for wholesale water supply (for example to OSNAAUG and private water companies) should be clarified given its important financial implications for USUG.
The WSRC will need to build its own capacity to develop robust tariff structures and review tariff proposals and manage this process effectively. A key consideration in these efforts will be maintaining affordability for Ger regions and low-income households. At the same time as increasing water tariffs, it is equally important to ensure that a targeted subsidy programme is put in place to ensure water affordability for low-income households. Careful consideration will need to be given to cross-subsidisation of low-income users, notably through commercial users.
Rapidly growing sectors of the economy, including mining, light-industry (e.g., leather tanning and textile) and agriculture are placing increasing demand on water supply. In addition, these sectors, and particularly industry, are increasing water pollution challenges, including contaminating existing water sources, which can further decrease water availability. At the same time, Mongolia's water challenges pose significant risks for companies, impacting their core operations.
Water sector policies and regulation play an important role in supporting investment. Recent updates to pollution and treated wastewater regulation (as discussed in Chapter 2) have already started to spur action by industry in managing pollution and exploring further options to reuse water. This creates new opportunities to mobilise private finance towards water security investments. For the private sector, water pollution control and wastewater reuse are an opportunity to reduce on-site water consumption and avoid wastewater discharge and pollution fees. As the gap between water supply and demand widens and regulations increase, the cost of inefficient water use and pollution can be reasonably expected to increase. With rising public awareness of water challenges, reputational risks will also rise.
3.4.1. Commercial finance can play a larger role in water-related investments
There is increasing interest in the banking sector to understand commercial finance opportunities for water-related investments. This has been linked to strengthened enabling conditions for private investment notably in pollution control. In addition, growing interest in green and sustainable finance in Mongolia represents an opportunity for the water sector.
New international actors such as Water Equity (set up initially by water.org) are entering the market to support commercial lending to companies active in the Mongolian water sector, including by providing support for sub-contractors and construction companies linked to water infrastructure. This is a positive step, as to date, there had been no specialised investors in the water sector and investors knowledge in relation to the water sector needs had remained quite low. The work of specialised investors, like Water Equity, can support greater identification of water related opportunities that could be attractive to private finance, and support discussion on current barriers.
Commercial banks participating in the kick-off meeting discussions for the National Dialogue on water noted that water supply and sanitation-related investments are already within their portfolio, notably to meet international financing requirements from funders such as Water Equity. Golomt bank highlighted that they had a water supply and sanitation-related loan portfolio of USD 10.6 million, with a further USD 22 million in the pipeline in 2023.
However, in the context of the Dialogue, participants highlighted that the private sector generally lacks knowledge on water security, scarcity, and investment opportunities as well as on the impact of water sector investments in general. Commercial banks have shown interest in encouraging better water management and metering practices amongst their clients in order to increase the availability of information on risk and provide the basis for conducting sustainability assessments. In Dialogue discussions, banks noted that metering is not yet adequately undertaken by companies abstracting groundwater resources through private wells, and corporates are reluctant to share water consumption data with financial institutions due to concerns for confidentiality.
Challenges linked to accessing data on water resources and water risks, which contribute to a complex environment for prospective investors to navigate, notably increasing the cost and associated risks of investing in water. Lack of quality data can create investment uncertainty in the mid to long term horizon, with respect to long term availability of water resources, but also potential transition risks, linked to policy changes, and liability or reputational risks, exacerbated by the increasing pressure that climate change exerts on water resources. As discussed in Chapter 2, currently, river basin authorities have very little budget despite being responsible for planning activities. This leads to difficulties accessing and maintaining high levels of expertise, hindering river basin plan preparation, data collection, and provision of fundamental support for water management.
Nevertheless, there are opportunities to harness sustainable finance initiatives for water. Mongolia has a relatively strong banking sector which could support water security ambitions. With respect to understanding water-related risks, members of the Mongolian Sustainable Finance Association already undertake Environmental Social and Governance (ESG) risk assessment for all business loan requests over USD 25,000 where loan tenors are 12 months or longer. Under the Mongolian Sustainable Finance Principles and Environmental and Social Management System frameworks, there are specific assessment questions for water.
Mongolia’s Law on Banking was amended in 2021 and the sector is currently undergoing reform to improve bank governance by creating accountability to a broader group of shareholders. Recent efforts have aimed at strengthening Mongolia’s capital markets, which can be an important opportunity for increasing access to capital in water-related investments across the economy. The Government of Mongolia has set ambitions to establish vibrant capital markets and use the state-owned Mongolian Stock Exchange to generate capital and portfolio investments, supported by the Revised Securities Market Law. Mongolia is developing a Green Investment framework, which includes a green bond regulation, a national roadmap for sustainable finance and green insurance regulation. The Mongolian Sustainable Finance Association is spearheading initiatives in Mongolia, including recent work on Mongolia’s Green and SDG taxonomies for investment, which both include water.
Under Mongolia’s SDG taxonomy, greater detail on screening criteria are to be provided which can help actors better understand technology choices. One characteristic of water-related projects is the potential to meet several environmental objectives, such as through nature-based solutions or integrated watershed management, so as to improve water quality, biodiversity and control pollution at the same time. It will be important to support financial sector efforts to clarify technologies and approaches for water -related investments that can be considered green and sustainable.
3.4.2. Public Private Partnerships have been identified as a means to mobilise investment.
Water reuse has been identified as a strategic priority to manage water demand in Ulaanbaatar. Public Private Partnerships (PPPs) can be particularly interesting for wastewater reuse schemes as they allow the partial transfer of costs, risks, and technical considerations to the private sector. International practices highlight the potential for PPPs to draw private sector investment and technical expertise for wastewater reuse schemes (OECD, 2023[39]). For example, in the city of Durban, South-Africa, where there was good potential for industrial use of treated wastewater, a PPP has successfully been used to implement projects. Previously, PPPs have been explored in Mongolia for wastewater reuse for combined heat and power projects (CHP), but challenges have been linked to economics of the projects, notably the value of wastewater tariffs and the sharing of costs between the public and private partners (2030 Water Resources Group, 2016[40]).
As of 2024, a Law on Public-Private Partnership (PPP Law) came into force, replacing the Law on Concession, with the objective of clarifying the regulatory framework for PPPs. This law aims to provide long-term support to the implementation of infrastructure objectives in Mongolia’s medium-term and long-term development policy documents, the "New Revival Policy" and ”Vision 2050”, by promoting competition in the public services sector, introducing financial instruments to meet growing needs, and reducing public budget burden in the long term (Government of Mongolia, 2022[41]). It targets public infrastructure and public services, excluding activities of the defence sector, banking and financial market services and activities, activities of exploration, mining, and exploitation of minerals for-profit purpose, and other activities prohibited by law. In 2024, the first competitive tendering of PPP in the renewable energy sector was planned (IFC, 2024[42]).
International experience shows that successful reuse of treated wastewater usually depends on the existence of a strong institutional framework to promote reuse and shape contract design (World Bank Group, 2019[43]). Guidelines from the Government of Mongolia on how to establish PPPs for specific wastewater treatment and reuse cases (including enforcement mechanisms) could equally support private sector financing and managing wastewater treatment infrastructure.
3.4.3. Clarity of regulation and technical standards can support greater private sector investments in water pollution control
While investment in water pollution control technologies is still in early stages there is increasing awareness of the importance of these investments and that monitoring, and enforcement of pollution regulation is likely to strengthen. As discussed in Chapter 2, institutional capacity to monitor pollution, enforce standards and norms, and manage the collection of charges and fees is still low. A lack of clear enforcement and collection of fees can undermine the potential positive impact of the Law on Pollution for incentivising investment in pollution control.
Generally, knowledge on technologies and approaches to manage water pollution control is still quite low. Representatives from the Food and Beverage sector during Dialogue meetings reported not having full clarity on the investments needed to meet regulatory standards. For small and medium enterprises, clarity on standards for pollution control technologies remains limited, which in addition to high upfront investment costs, creates an uncertain environment for investment. In the context of the National Dialogue on Water, stakeholders from the textile sector highlighted the scale of investment needed for wastewater treatment as a notable challenge. The potential clustering of textile manufacturing with common wastewater treatment technology was cited as an advantageous solution for the sector to jointly invest in infrastructure. These experiences highlight a need for continued stakeholder engagement with local private sector to discuss ongoing challenges to investment in water pollution control and treated wastewater reuse.
Certain large private companies and corporations, notably those with international shareholders, are already committing voluntarily to sustainable water use practices, aligning with international standards as part of their Corporate Social Responsibility activities. This includes prominent cashmere producers such as Gobi Cashmere Corporation and Loro Piana, which have implemented wastewater treatment technologies to mitigate their environmental impact. Additionally, Gobi Cashmere Corporation sources eco-friendly dyes from Switzerland and Germany to minimise environmental harm during the cashmere dyeing process. Their reputation for environmentally friendly production is seen to grant them a competitive edge, which justifies higher sales prices and additional investments (Gobi Cashmere, 2023[44]).
Aligned with the international corporate social responsibility standards of its client, MCS Coca-Cola, the bottling company in Ulaanbaatar established a wastewater treatment facility, becoming the first company in the city to do so. The company’s wastewater undergoes treatment in accordance with international norms before being discharged into the central sewerage network. The primary objective is to adopt global standards, uphold a positive reputation, and indirectly enhance brand value (2030 WRG, 2014[45]).
Continued strengthening of implementation and enforcement of laws and regulations on water pollution and treated wastewater reuse will help build the business case for private investment. Notably effective reuse of treated wastewater typically relies on a robust institutional framework to promote reuse and formulate contract agreements (World Bank Group, 2019[43]).
3.4.4. Summary recommendations on mobilising private investment
To support greater uptake of private investment in water pollution control across light-industry, further clarity on technology standards would be beneficial. As discussed in Chapter 2, the Best Available Techniques (BAT) approach could be considered for water pollution. This would enable industry to participate in choice of technologies which meet environmental objectives whilst also being economically feasible. BAT-based permitting creates guidance on approved technologies and approaches to managing industrial water pollution. The determination of BAT is undertaken through a Technical Working Group, with techniques identified by applying criteria across technical, environmental and economic aspects. The focus on all three aspects is important as it supports the development of guidance which meets pollution control objectives whilst also being economically feasible within the national context, as described in Box 3.7. This approach could support greater clarity and common understanding between regulators and industry on an economic and environmentally sustainable pathway forward for industrial water pollution control.
Further clarity on technology standards would also be beneficial to tap into the growing demand from investors for sustainable projects. Water investments should make visible the range of benefits they deliver, for climate action, biodiversity and the environment generally, while also taking actions to avoid “green washing”. This requires strengthening the common understanding of what is considered a green or sustainable investment. Differences in policies and standards relating to sustainable investments can result in market fragmentation and increased uncertainty, constraining the financing of transition-compatible assets and projects.
Enabling conditions should be strengthened for private sector investments in water reuse and water pollution control. This includes through enhanced enforcement of pollution laws, notably with respect to collection of fees. Continued strengthening of implementation and enforcement of laws and regulations on water pollution and treated wastewater reuse will help build the business case for private investment. Notably, effective reuse of treated wastewater typically relies on a robust institutional framework to promote reuse and formulate contract agreements. International experience shows that successful reuse of treated wastewater usually depends on the existence of a strong institutional framework to promote reuse and shape contract design (World Bank Group, 2019[43]). Guidelines from the Government of Mongolia on how to establish PPPs for wastewater treatment and reuse cases (including enforcement mechanisms) could support private sector financing and managing the wastewater treatment infrastructure.
Availability and access to information, data, and tools are critical for fulfilling their responsibilities, and low quality and quantity of data on the groundwater resources remains a challenge to effective planning. Investment could be further supported by increased data collection efficiency, transparency, and accessibility, in particular, regarding data on groundwater resources. A central data collection mechanism to collect and compile data from different organisations systematically would be beneficial to provide greater clarity to investors.
The determination of BAT should be based on a set of universal criteria, encompassing technical, environmental and economic aspects. It is essential that all three aspects be considered.
In addition, cross-media and cross-pollutant effects should be considered when determining BAT. Furthermore, minimum environmental quality standards, e.g. as defined in international conventions or water quality standards that are similar across countries, should be considered when setting BAT associated emission levels (AELs). Countries should facilitate the exchange of information on such standards across countries.
When evaluating candidate techniques, the technical working groups should use a standardised methodology for the assessment of economic aspects of these techniques, including affordability, e.g. through a cost-benefit analysis (CBA), or – where this is not possible – a less resource-intensive procedure. A candidate BAT can be considered economically viable if:
it is affordable for an average well managed enterprise of the sector, i.e. it has been widely implemented in the relevant industrial sector without government subsidies or other financial support mechanisms, accounting for total financial costs and environmental benefits, and it is reasonably accessible to operators, e.g. not covered by a restrictive patent; and
the cost/environmental benefit ratio is not unreasonable.
Source: (OECD, 2020[46]) Best Available Techniques (BAT) for Preventing and Controlling Industrial Pollution, Activity 4: Guidance Document on Determining BAT, BAT Associated Environmental Performance Levels and BAT-Based Permit Conditions.
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← 1. 1 USD = 3,433.89 MNT
← 2. The same law states that if the preliminary findings of the technical and financial feasibility of the project proves its socio-economic benefit and impact, then MED conducts detailed feasibility study and detailed design.
← 3. Currency rate as of February 2024, 1 USD = 3450 MNT
← 4. Detailed feasibility study for one project is ongoing, cost estimation to be updated.
← 5. Titles are cited from the Cabinet resolution from 2023 on the council members. As of December 2024, some ministry titles have changed. Refer to the list of abbreviation cross-checking of former and current titles.